Banking at credit unions, community banks

The Move Your Money movement launched in late December 2009 and is urging bank customers angered by the reckless lending practices of too-big-too-fail national banks to move their money to a community bank or credit union.

And according to community banks and credit unions, plenty of folks already had been making that move over the past year. Membership at credit unions grew by 2 percent in 2009, according to the Madison, Wis.-based Credit Union National Association.

In addition, 55 percent of community banks have seen an increase in deposit accounts from new customers, according to a February 2009 survey from the Washington, D.C-based Independent Community Bankers of America.

Ready to leave that big bank and move your money to a community bank or credit union? Here’s a closer look at the pros and cons of such a move.

Good rates

Do your banking at a community bank or credit union and there’s a good chance you’ll land better interest rates on everything from credit cards and saving accounts to money markets and certificates of deposit. For example, a study by the Pew Charitable Trusts in July 2009 found credit card rates at the 12 largest banks of 12.24 percent to 17.99 percent. At the 12 largest credit unions, the rates were 9.9 percent to 13.75 percent.

Smaller banks use rate specials on deposit accounts to attract new customers and new deposits, says Reuben Clarson, an executive vice president at Atlanta-based Speer & Associates, a financial services consulting firm.

And credit unions, which are member-owned nonprofits, pass surplus profits back to members in the form of competitive interest rates, dividends and low fees, says credit union association spokesman Patrick Keefe.

Another nice thing about banking with a federal credit union is that loan interest rates, including credit cards, are capped at 18 percent by law.

Not so at national banks. “Big banks have no cap — zero — and have in some cases charged more than 30 percent interest on some loans and on credit cards as penalties,” says Ruth Susswein, deputy director of Consumer Action, a San Francisco-based consumer education and advocacy organization.

Lower fees

Another advantage of banking with smaller banks or credit unions is they tend to charge lower fees.

A November 2009 study by the Filene Research Institute in Madison, Wis., which conducts research on credit unions, shows that the average annual cost of fees on bank checking accounts is more than twice as high as the annual cost of fees on credit union accounts.

The study found that banks charge fees of $183.14 per year or $15 a month, while credit unions charge fees of $71.47 per year or $6 a month.

Though smaller banks tend to charge lower fees than big banks, this isn’t always the case. “Do a comparison of different fees and interest rates,” says Patricia Seaman, spokeswoman for the Denver-based National Endowment for Financial Education. “You shouldn’t assume one institution is higher or lower than another.”

More personal customer service

Small banks and credit unions pride themselves on excellent customer service, Susswein says. They make a point of getting to know their customers.

“The big banks may offer speed and convenience,” Susswein says. “The credit unions and community banks make up for it in service and typically more personal attention.”

Fewer branches and ATMs

Unlike a big national bank, a community bank or credit union won’t have branch locations and ATMs all over the country.

Credit union and community bank branches will be limited to a small geographic area. And you’ll have fewer options should you need to visit a branch. Make sure there’s a branch close to where you live or work. The same goes for automated teller machine locations.

With far fewer ATMs at your disposal, you may be tempted to use another financial institution’s ATM. If you must withdraw money from another bank’s ATM, you could face an average fee of $2.22 for your withdrawal, according to Bankrate’s 2009 Checking Study.

To avoid fees, stick to the ATM network provided by your community bank or credit union. The Co-Op Network, a group of more than 1,400 credit unions, provides surcharge-free ATM access at more than 25,000 locations nationwide.

Limited customer service hours

Unlike a big national bank, small community banks and credit unions may not provide a 24-hour, seven-days-a-week customer call center. You also may need to limit your in-branch banking to weekdays.

“Customer service may not be available on weekends or after 5 p.m. during the week,” Consumer Action’s Susswein says.

Fewer bells and whistles

Big banks have the edge when it comes to providing the latest online and mobile banking choices to customers, banking consultant Clarson says.

Study a community bank or credit union’s online banking options carefully. You’ll want to know if the community bank or credit union gives you the option of paying bills online. If so, are there fees? And does it offer mobile banking?

Susswein also says to ask if the credit union or community bank processes payments for bills paid online the same day. She recommends picking a small financial institution based on your banking needs.

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